[2009] UKFTT 41 (TC)

TC00019

VAT – Notice of Assessment – Appellant farmer – legitimate user of rebated diesel fuel – road vehicle detected with rebated fuel in running tanks – audit exercise – availability of invoices or receipts to establish purchases of Derv in Republic of Ireland – records not kept – Notice of Assessment – gaps in analysis for audit purposes – appeal – explanation forthcoming - assessment adjusted downwards – appeal allowed to that extent

BELFAST TRIBUNAL CENTRE

                                       PATRICK McKENNA                                          Appellant                             

-and –

              THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

			Tribunal:      Alistair F W  Devlin	 (Chairman)

						
					
Sitting in public in Belfast on 30th January 2009

for the Appellant       The Appellant appeared in person      

for the Respondents Mr Haley on the instructions of the Solicitor to H.M Revenue and
                                    Customs           

                                            © CROWN COPYRIGHT 2009

                                                         DECISION

Introduction

1. This is an appeal brought by Patrick McKenna [“the Appellant”] against a decision taken on review to uphold the issue of a Notice of Assessment to excise duty in the sum of £2,151 dated 10 July 2007

Factual background

2. The Appellant carries on in business as a sole proprietor in the farming industry. The Appellant currently farms approximately 47 acres, where he raises sheep and also some beef cattle. The Appellant at all material times has had a legitimate use for red diesel fuel, that is rebated diesel namely the operation of farm tractors

3. On 2 June 2007 a vehicle which was being driven by the Appellant, namely a diesel engined Toyota Hilux pick up truck bearing the registration number FHZ 5198 was stopped by officers of the Respondents on a public highway at Clogher, County Tyrone. A sample of fuel drawn from the running tank of the vehicle was found to be red in colour, and to consist of rebated fuel. 

4. The Appellant was interviewed on 2 June 2007 and he readily accepted that he had indeed put rebated fuel into the vehicle. The Appellant also confirmed that at his home farm he had a fuel storage facility for red diesel, capable of containing up to 600 gallons of rebated fuel at any given time. 

5. The Respondents set about an audit of the Appellant’s purchases of non rebated road diesel fuel or DERV. These assessments were based upon the entire mileage which the vehicle in question had travelled in the period between 11 July 2004, [being three years prior to the date of issue of the Notice of Assessment] and 2 June 2007 [being the date of detection]. As part of the assessment the Respondents took into account all receipts for DERV produced by the Appellant in respect of the period in question. The Appellant, although he insisted from the outset that the vast bulk of his DERV purchases as effected by him in the Republic of Ireland could not be vouched by means of receipts or invoices, nevertheless produced such receipt information as he was able. This audit produced a shortfall, which was in turn used directly to calculate the amount of the Assessment in the sum of £2151. There were however certain gaps in the analysis set out in the audit. There was just under a two month gap between 10 December 2004 and 4 February 2005, in respect of which no receipt information or documentation whatsoever had been produced by the Appellant.  In addition, there was a further gap extending over the period of just over seven months or thereabouts between 26 September 2005 and 3 May 2006, during which the Appellant had been able to produce no vouching records of DERV purchases whatsoever. In total, there were gaps in the analysis prepared by the Respondents amounting to nine and a half months.

6. By letter dated 4 August 2007 the Appellant requested a departmental review of the decision. He cited and relied upon two factors, namely, what the Appellant alleged had been a failure on the part of the Respondents to take into consideration two other agricultural vehicles which the Appellant owned, and which he claimed had not been taken into account whenever his estimated fuel consumption had been assessed, and secondly what the Appellant himself sought to describe as his own ignorance in not knowing to request receipts for DERV purchases made by him during the period in question from the Republic of Ireland.

7. As requested, a formal departmental review was indeed undertaken by Ms A Cook, a Review Officer. Confirming as she did in the contents of the review in a letter dated 17 September 2007. Ms Cook concluded as follows;

             ‘I have checked the calculations for the assessment and am satisfied they are
              correct. As I mentioned in my previous letter the assessing officer has made
              several concessions regarding the mileage and mpg and without any further 
              evidence there is nothing further I can do.’

Evidence adduced before the Tribunal

8. Ms Cook gave evidence on behalf of the Respondents. The Appellant, who represented himself during the course of the hearing, also gave evidence on his own behalf.

9. The Appellant explained the circumstances in which he claimed, on the date he had been stopped earlier placed rebated red diesel fuel into the running tank of the Toyota vehicle. He explained that he had been tending to cattle on an out farm, approximately one mile from his home, whenever he had unexpectedly run out of DERV whilst driving the vehicle off road. He had walked home, and then, he accepted foolishly, he had filled an oil jar with 5 or 6 litres of red diesel from his storage tank facility, which he had subsequently decanted into the running tank of the Toyota before driving towards home, being stopped by the Respondents officers on the way.

10. The Appellant’ case was that during the period of the audit carried out by the Respondents almost all of his DERV would have been purchased by him in the Republic of Ireland, and that he would have paid cash. He accepted that whereas he was now meticulous in requesting and retaining all such receipts, he did not previously do so in respect of these purchases. The Appellant insisted in his evidence that this would have been the pattern of his DERV purchases during the entirety of the period in question, his regular DERV purchases in the Republic having varied anywhere between £60 and £120 a week or thereabouts. The Appellant was however unable to substantiate these purchases, since they were almost exclusively paid for by him in cash, and he had not requested or kept the appropriate receipts.

11.  The Tribunal found the Appellant to be a truthful and compelling witness, and whilst it certainly had no difficulty that the Appellant had acted both unlawfully and foolishly on the date of his detection, it also accepted that the evidence which the Appellant was adducing before it in relation to the pattern of his DERV purchases in the Republic of Ireland during the period in question was substantially accurate.

12. In light of the evidence adduced by the Appellant during the course of the hearing, the Respondents indicated its willingness in respect of various periods totalling between them some nine and a half months, between 10 December 2004  and 3 May 2006, during which or in respect of which the Appellant had been able to produce no vouching records of DERV purchases whatsoever, the pattern of vouched purchases of DERV as had been established on either sides of those various periods had indeed been broadly representative of the Appellant’s consistent pattern of DERV purchases in the Republic of Ireland.

13. In light of this concession, which appeared to the Tribunal wholly appropriate in the circumstances, the Respondents indicated that this revised approach to the audit and the figures which it contained produced an estimated legitimate DERV usage figure for the Appellant in the sum of 95.31 litres per month. If that assumed legitimate DERV usage figure were then averaged over the entire period of the audit exercise, it led to an assumed additional user of DERV in the disputed period of 2668.68 litres; if that figure were in turn to be deducted from the previous assumed litre shortfall figure of 5140.86 litres, a revised shortfall figure of 2421.18 litres was produced, and the figure for the Notice of Assessment in turn came down from £2151 to 48% of that figure namely £1,032.48.

14. The Tribunal considers the suggested adjustment to the Notice of Assessment figure wholly appropriate in the circumstances. Indeed, had the adjustment to the figure assessed not been suggested, the Tribunal might well have had considerable difficulty in considering the original figure to have been arrived at by means of the exercise of best judgment.The Tribunal accordingly allows the appeal but only to the extent that the Assessment shall be adjusted and revised downwards by means of an adjustment of 48% from £2151 down to £1,032.48. There shall be no order as to costs.

CHAIRMAN

  RELEASED: 8 April 2009